EUR/USD Daily Forecast – Euro Makes a Run at the 1.1400 Handle

Ranges Are Predominant in Many Instruments

Several instruments have been stuck within a small range this week. GBP/USD for one has been contained to a roughly 60 pip range for most of the week. The 10-year yield has been hovering above 2% for most of the week, and the S&P 500 has also been ranging near record highs.

The US dollar index (DXY) showed an attempt to recover in the early week, but rallies seem to be capped around 96.35. I think part of the reason for this is that investors are awaiting the outcome of the G20 meeting.

For that reason, I don’t think EUR/USD can break much higher from here. The pair seems to be diverging a bit from other instruments. Even USD/CHF, a pair that was under a lot of pressure when the dollar turned last week, doesn’t seem to be carrying a lot of downside momentum today.

Inflation data out of the Euro area has not had much of an impact on the exchange rate. CPI was estimated to rise 1.2% year over year in a flash reading. Core CPI was reported at 1.1% which was a tick higher than the analyst estimate.

Technical Analysis

A hurdle for the pair might be the June high which comes in at 1.1411. Ahead of that, however, the pair might see some sellers or profit taking at the psychological 1.1400.

I think the pair might eventually try to make a move for 1.1450, but a catalyst seems to be lacking, at least for now. There will be inflation data out of the US later today, but the PCE deflator usually triggers a muted response in the markets.

A level that I’ve been watching for most of the week falls at 1.1385. I’m viewing it as a pivotal level. While above it, I think EUR/USD can test the 1.1400. If it drops back below, I would expect it returns to around 1.1360 which is the area where it has spent most of the week.

Bottom Line

• There is inflation data from the US later today. I don’t expect a sustained reaction in the exchange rate as a result of it.
• EUR/USD rallies might be capped at 1.1400 or 1.1411.
• The G20 stands to offer a catalyst, I expect an increase in volatility next week.